1 Department of Economics University of Toronto ECO 340H1S 20111--Income Distribution Midterm Test Duration: Ninety minutes Aids Permitted: None Maximum: 100 marks Instructions: Answer only two of the following three questions. They have equal weight. Answer each question in a separate book . Circle the question number in the “Examiner’s Report” on the front of each examination book to indicate which question is answered in each book. 1. A. “In 2009, a generally lousy year for corporations, the average compensation for the top 100 executive chief officers in Canada ($6.6 million) was 155 times the pay of the average worker ($42, 988). And the trend is in the direction of the CEOs: a dozen years ago, the ratio between the pay of the top 100 chief executives and the average worker was 104-to-1.” ( Toronto Star , January 4, 2011, p.A12). Critically assess tournament theory and the theory of the economics of superstars as explanations of the large and growing gap between the highest paid employees and the
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